How to Fix the Airline Industry and Bring Back Competition

When Northwest and Delta merged, and when United and Continental merged, there were real worries about the viability of the airlines as standalone entities. The years after 9/11, and then the Great Recession, were tough on airlines with economic malaise and high fuel prices. When US Airways and American merged, the latter was in banruptcy (and US Airways itself had been in bankruptcy twice in the previous decade).


Delta Boeing 777 Interior

The Department of Justice ultimately opposed a merger between United and US Airways in 2000. Perhaps that opposition could have been overcome but United tired of the idea. The DOJ did initially oppose the US Airways tie up with American, though it wasn’t clear they had the legal footing to ultimately prevail (the kind of delay DOJ can impose on a merger through litigation, though, can often be enough to undo it — regardless of the ultimate legal disposition of the case).

Mergers are often blamed for all manner of ills in the industry, the idea that:

  • There are fewer major airlines than there used to be
  • And a belief that if there was more competition consumers would get a better experience

Fees are up and annoying, but prices are down after a very brief upward bump. Saturday stays are rarely required to get the best fares anymore, and there’s pretty much no such thing as a $2000 roundtrip ticket in economy between the coasts.

Air travel isn’t demonstrably worse than it was 10 years ago or 20 years ago. We have inflight wifi, and more entertainment options, as well as more technologically advanced aircraft. The major airline standard of 31 inch pitch in coach was already in place then.

Frequent flyer programs are less generous, but with planes full airlines spend less on marketing to fill incremental seats since there aren’t many incremental seats. Concentration probably also plays a role here, at least with programs’ ability to attract big money from banks for credit card deals.

We do still have 4 major players in the domestic market — American, Delta, United, and Southwest — and Alaska Airlines is bulking up by buying Virgin America. Airlines like Spirit, Frontier, and Allegiant drive pricing for the majors in many of the markets in which they fly. That’s more competitors than in many industries whose competition we don’t wring our hands over.

Whether or not it’s fair, complaints about lack of competition and a wish that airline mergers hadn’t been approved is one of the most prevalent refrains from frequent flyers. However complaining about mergers that have already completed is shutting the barn door after the horses have left.

Whether or not we have “enough” competition, more competition would be desirable. Indeed, if the airlines weren’t so successful using government to protect themselves from competition, we’d have more of it.

The major US airlines have a strangehold on the House Transportation Committee. Congressman Shuster (R-Conquistadores del Cielo) seems to want to give the airlines whatever they wish. Consumer choices, convenience, and competition-lowering fares don’t appear to factor.

And they’ve got regulatory capture at DOT (which improperly ignores consumer complaints) as it is — which matters since the Supreme Court has nearly eliminated the ability to sue so your only avenue of redress is the DOT.

Delta, United, and American want to limit flights and low fares from major Gulf airlines.


Emirates A380 First Class Shower

United lobbies to keep competition for its Washington Dulles hub illegal.


Washington Dulles

And experienced airline competitors from around the world aren’t permitted to fly passengers between US cities, competing against the big incumbent airlines.

The easiest way to get more competition is to eliminate laws that forbid airlines from competing, like restrictions on foreign ownership of US airlines. Let Ryanair and Singapore Airlines operate in the US domestic market and compete against United and Delta.


Singapore Airlines Boeing 777-300ER

It’s an idea that’s taking shape elsewhere in the world. India is lifting limits on foreign ownership of airlines. Brazil passed legislation to allow this as well but it’s stalled with the executive planning to veto legislation that would have done the same. But the discussion is serious enough that proponents are getting close there.

Quit protecting the airlines from competition. Not only are there fewer airlines they keep asking for more government privilege, shutting out the Gulf carriers or forbiding from offering low prices.

Free the planes!

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Comments

  1. You think the solution to airline anticompetitive behavior is to allow foreign carriers to operate domestically in the US? Really, “thought leader?”

  2. “Air travel isn’t demonstrably worse than it was 10 years ago or 20 years ago”

    It is.

    Today I am just traveling in the US working very hard on my behavior smiling to hopefully not get provoked, mistreated or worst by FA and airport staff. Even if traveling in First. Things are just crazy now a days. Not quantifiable like internet, but we are so far from where we were 10 years ago.

    Hopefully a lot of things in our world are cyclical and to me we have reach the bottom or close to it. No way people will continue having to pay and take the kind of behavior from airlines and airport employees. Anyone who travelled in a Asia or even Europe can see a massive difference.

    I used to love traveling, not the destination but the actual travel since i was a kid, today I keep my flying with US airlines to a minimum, and am just glad if the FA / TSA don’t bother me and let me be and get me to my destination around the scheduled time.

    Very sad that my sons will never experience the great FA/pilot smiling loving their job showing them how great the industry is etc.

  3. “Air travel isn’t demonstrably worse than it was 10 years ago or 20 years ago”
    Bravo, db, it is. Since Gary is almost always in first class, he forgets that we once got meals in coach. You could even order a special meal. When my children were young, UA offered McDonalds Happy Meals in coach. We used to get pillows and blankets. Flight attendants acted like they wanted our business. I won’t even get into the wonderful “enhancements” brought to us by the TSA.

  4. Allow foreign owned airlines to operate in the US would be a simple way to get more competition. I see no way that would ever happen unless US airlines could operate routes in foreign countries.

    If foreign air carriers wont be flying from MSY to CLE, what’s your Plan B?

    Regarding the proposition that air travel is as good today as it was 10 or 20 years ago, that does not fit my experience. If that was the case, there doesn’t seem to be much of a problem. ,

  5. @JimInBoulder
    Yes, we used to get much more in coach than we do today, but weren’t we also paying much higher fares? I’d rather forego the food in exchange for a reduced fare, such as is the case now, but in comparing the service offered by carriers in Mexico with our domestic carriers, their fares are low and the service (including food and beverages) is very high, while our domestic carriers have fallen below low in the service department. I guess I could say that domestically, we get what we pay for, while elsewhere we get a lot more for what we pay.

  6. @Keith~ why not let the market decide? If non-US airlines find operating in the US market unviable, they won’t. With all airlines running at high capacity right now, I think some extra capacity would be welcomed by the travelling public, if not the cosseted airlines. Time to check your xenophobia!

  7. The devaluations of the loyalty programs has gotten so out of control. With cc’s offering tens of thousands of miles to carry their plastic a market of gamification was created and much of the time it has left the BIS travelers with less every year.

  8. Yes, I would like Emirates to be able to throw some A380s on the Phoenix-Las Vegas route to combat American and Southwest’s current virtual monopoly on the route that results in $450 roundtrip walk-up fares for a 45 minute flight. Nice guys.

  9. Domestic flights in Europe, Asia, and Australia are all cheaper with better service that the US. Australia opened up domestic airlines to international competition a few years ago, and the sky has not fallen. Still no crashes, but prices are far lower than flights of the same distance in the US. Australia has minimum wages that are double the US minimum wage.

    Not sure why people are so against foreign airlines competing. They will still hire American flight attendants, pilots, and be subject to FAA laws. The main difference is they won’t have the legacy issues of outdated union contracts, poor management, etc. Do you really care whether the airline’s “profits” go to shareholders of the US listed airlines, or shareholders of the overseas listed airline? With financial markets so global, there is likely a lot of crossover in ownership regardless.

  10. it is realistic and would have positive effects if US and EU airlines could operate in each others market like domestic carriers. Have open and transparent negotiations (not like TTIP) and a treaty like this could be done easily. Would even strengthen everybody against the asian competition.

  11. Yeah I think lucky OZ has a great point. While I agree the large distances in the US (compared to Europe for example) create a different model for the airlines which is very fuel price dependent it doesn’t negate the core problems (especially when oil is relatively cheap). I still believe it’s the old unions who are putting a stranglehold on the industry. I also agree if you open it up to more foreign airlines it will only serve to push the big 3 (or 4) legacy to innovate and improve. At the moment they are happy to have a virtual monopoly on many of the routes in the USA which only serves to to provide them with bigger profits and consumers with more expensive lessor quality products. If I am not mistaken the current laws allow up to 25% foreign investment in a USA carrier. So it’s not like it isn’t already happening!

    America claims to believe in a free market economy and a capitalistic market, except when the lobbyists pump billions (into our politicians pockets) to support a protectionist policy which actually hurts the American public. BTW this problem doesn’t only hurt the airline industry but look at others such as health insurance, gun industry, automobile etc. etc.

    Fix the lobby industry and standard political practices and you probably fix the airline industry as well! Maybe we should start at the source of the disease and stop trying to cure the symptoms.

  12. Step ONE.

    Get rid of the Regulatory Framework that the Major Players have quite “properly” manipulated. Hey if you were going to be stuck with the same rules and regs over a long period of time, you would figure out ways to make it work as well.

    Sorry folks, this means VOTING out career politicians. You know the type who when actual people lose their lives, when mothers and fathers don’t return home from a day at work because someone thought they were justified in violence, goes on national media, twitter, and every outlet calling out for empathy for the murderers.

    Yes. Sorry know you hate the politics. ( In many ways a lot of us do) but there should be only ONE primary goal right now if you’re interested in true reform.

    Get rid of them. Democratically. Vote them out . All of them .

    Otherwise, Fear the “reaper”.

    Her chosen quote.

    “Let us not grow weary in doing good, for in due season, we shall reap, if we do not lose heart.”

  13. I’ve heard US3 pilots cry foul over the Open Skies agreement with the ME3. Just imagine if the ME3 were flying domestic routes. Once the US3 lose control over the market they freak out. AA is already pushing elites to foreign carriers for EQD next year. This is something they all created themselves. Bring in foreign carriers and bring in real competition where the pax is the one who benefits.

  14. Ive been in the industry for 29 years..I miss what I call the good old days. Yes fares may be cheaper, but service is nonexistent to a point. I used to love serving meals onboard, but now its pretty much throwing peanuts. The public spoke with their wallets and demanded cheaper fares..well then you have to deal with cutbacks. You cant have your cake and eat it to. Sorry for the rant, but people want a $200 rt fare and expect the finest…not gonna happen. I flew American from HNL-LAX only got peanuts and one drink..i didn’t care, as I always bring food onboard. one last thing, you stated that there are no $2000 fares domestically. I had to book a SDF-MDW rt on DL last minute and it was $1180 in economy, so my guess would be that a last minute coach tkt out west would be well over $2000 imho. thx for the post and don’t mean any disrespect. take care all.

  15. Sorry, one more thing. I would welcome foreign competition, and let them fly to/from anywhere within the U.S. Maybe then the U.S. Airlines would have to step up.

  16. Until the US privatizes its airports, it will remain the Quasi-Soviet system it has always been. Soviet style landing fees imposed by bureaucrats greatly limit capacity, and subsidize members of airline workers unions (and ironically also subsidize Embraer and Bombardier). The US is practically alone in the developed (and much of the undeveloped) world in privatizing its airports.

Leave a Reply

Your email address will not be published. Required fields are marked *